How to get the most out of your taxes by planning ahead

Many people spend little time thinking about their taxes before W-2s start coming in the mail. However, the more diversified your assets become the more important it is to create a tax plan for your finances. For those looking to make the most out of their income and reduce their tax liability, consider these tips:

Understand your withholding options

As we covered in a previous post, recent changes to the tax code affected the amount many people should have withheld from their paychecks. If you received a large tax refund in the past, you probably had too much withheld.

Married? Consider filing separately

Many people assume all married couples benefit from filing joint tax returns. However, in some situations, that is not the case. If one spouse can claim several deductions while the other very few, it may be better to file separately. Or, filing separately might allow you to be in a lower tax bracket.

Keep track of proof for deductions

Early in the year, research what deductions you might claim. Then, be sure to keep track of receipts and other documentation the IRS will likely require when you claim those deductions.

Find ways to reduce taxable income

Some deductible expenses can also help you get into a lower tax bracket. Planning ahead can help determine whether prepaying your mortgage or donating to a charity could further improve your tax liability. Another simple way to reduce taxable income is maximizing the amount you put into employer-sponsored retirement plans. Since contributions are taken out of your paycheck pre-taxes, you make the most of your income.